All Roads Lead to Increased Insurance Premiums

Insurance is not a new issue in the Bronx. Advocacy work around it dates back to the 1970s and was directly connected to the redlining which took place in low-income neighborhoods in NYC. Advocates for affordable housing were able to target specific carriers and pressure them to write policies in neighborhoods that they had previously excluded altogether. As time went on, more carriers were willing to insure in the Bronx and, therefore, collect healthy premiums from the transitioning and thriving neighborhoods in the borough.

About 5-7 years ago, these year-over-year renewal increases started to grow to 5%-10%. Then, from 2019 on, some increases were closer to 30% for plans that offered less coverage, had more exclusions, and higher deductibles. On top of these larger yearly renewal increases, it also became more challenging to find an alternative quote — we could no longer simply switch to a new carrier to keep costs down. Data from the Rent Guidelines Board (charts below) corroborates the cost increases that we have seen in our own portfolio showing a dramatic increase in the cost of insurance since 2018 with yearly costs increasing nearly 48% by 2021.

Upon seeing the drastic increase in our own portfolio, UNHP worked with ten Bronx Multifamily Building Operators with over 15,000 units (mostly in the Bronx) to survey rising insurance premiums and to take a closer look at the issue, its impact on Bronx multifamily housing, and offer some recommendations, outlined in our 2022 report, All Roads Lead to Increase Premiums. After two years of discussion and pricing analysis, one thing has become clear: that there is not one single issue responsible for the sharp increase in insurance costs, but a multitude of factors including increased coverage requirements, perceived increased risk, and outdated legislation. The factors and the exorbitant price increase for coverage need to be addressed in a way that does not result in the low-income families and individuals who live in these buildings carrying the financial burden through rent increases.

The report can be downloaded here. Below please find a summary of some of the issues and recommendations detailed in the report.

All Roads Lead to Increased Premiums Report

Umbrella Coverage

Umbrella coverage refers to liability protection for injury to others, property damage, and specific lawsuits beyond what general liability policies will cover. This type of coverage is crucial because it is often required to obtain city, state, or federal funding. In conducting a survey of over 6,000 units on the cost of different policies from 2018 to 2020, costs have increased in all categories of insurance; umbrella, liability, and property for multifamily housing, with the most significant increases for umbrella policies.

Moreover, we found that another significant issue with umbrella coverage was the frontloading of costs, whether an operator is looking for large or small coverage options. Considering that no survey participants had exceeded their general liability coverage, the increased umbrella coverage rates and frontloading of coverage options seem surprising.

The Courts – Losses, Jury Awards, and Backlog

In our conversations with insurance brokers, we have heard that both the Bronx and affordable housing specifically are associated with higher risk levels, especially for “slip and fall” type claims. There is also a widely held belief that jury awards are higher in the Bronx than in other boroughs. However, we have seen no data supporting either of these claims. Because of the backlog in the court system due to Covid-19 closures, we are concerned that plaintiffs will refuse settlements and hold out for a potentially higher jury award as courts begin hearing cases again. This is troubling as an increase in jury awards is likely to strengthen the existing notion that affordable housing in the Bronx is highly risky to insure.

Scaffold Law/Labor Laws

The Scaffold Law places absolute liability on property owners and contractors for “slip and fall” and gravity-related incidents. New York State is the only state which has this law and it was not made in accordance with OSHA safety standards. Because this law provides no protection to owners and contractors against these claims, it makes affordable housing that much more unappealing for insurance carriers. As a result, affordable housing projects are left with less coverage and higher premiums. We urge lawmakers to reevaluate the Scaffold Law because of these harmful consequences.

Senior Housing

Many senior housing projects have minimum insurance requirements which have been affected by increased insurance rates and insufficient insurance options. We suspect that carriers have assigned a higher risk of incurring medical costs to senior housing properties, as property liability coverage covers the cost of medical in the event of an injury claim. Unfortunately, medical costs are rising from 6% to 8% annually which will most likely contribute to continued increases in liability plan pricing for senior housing.

Exclusion of Small and Medium-Sized Businesses, Including MWBEs

In recent years, contractors had had to purchase liability policies that are much larger and more expensive than previous rates. This has led to many small to medium-sized companies, including many Minority and Women-Owned Enterprises (MWBEs), being excluded from obtaining contracts for projects in their community.

Inspections

While it is standard practice for carriers to inspect the property in question for potential liabilities, we have observed a marked increase in work scopes as a condition of policy renewal. Work scopes are a somewhat hidden component of the true cost of insurance. While you may be quoted a premium increase of 10%, you may be additionally quoted a work scope of $10,000 to $20,000 after inspection. Moreover, work scopes force owners to complete repair work under tight time constraints as they are required for the policy to commence, as well as preventing money-saving strategies by lumping smaller jobs together.

Cost Mitigation Strategies

As part of our working group of affordable housing operators, we have tried to come up with creative ways to reduce premiums and mitigate increases while maintaining the necessary coverage limits. Oftentimes this means reducing excess coverage or coverage above the amount required by lenders to the minimum amount required. Another strategy is to increase deductibles from 100% to even 500%. However, this method may mean that the housing project does not have access to that cash for other immediate needs. Some groups have also switched to lesser-rated non-admitted carriers that are not protected by the New York State Guaranty Fund. In other cases, nonprofits are self-insuring. However, this is also unsustainable because of the significant financial liability to which nonprofits are exposing themselves.

Looking Ahead

Senate Bill S2531 directs the New York State Division of Housing and Community Renewal (DHCR) to investigate the increasing cost of insurance premiums as well as the lack of availability of insurance for affordable housing. While we are excited about this measure, our collective fear is that in the time it may take to identify the reasons behind these trends, projects will become unable to manage growing insurance costs. We believe there are actions that can be taken in the short term to provide immediate relief to crucial affordable housing projects. Below are a few suggestions for consideration:

• We need our lenders to consider changes to umbrella coverage limits.

• We need our legislators to look at the unintended consequences of legislation like the scaffold laws.

• We need our judicial system to look at the possibility of caps on payouts, the current legal standard for claims, and what we feel is the predatory practice of paying plaintiffs not to settle.

• We need the NYS, DFS, and HCR to determine whether affordable housing is being excluded from obtaining coverage or discriminated against because of the population it serves, be it, low-income families or senior citizens.

• To provide immediate relief, we think that an insurance subsidy for single-purpose entities providing regulated affordable housing is necessary in order to maintain the existing affordable housing stock.

Read more about our work with Bronx Building Operators on our blog post about water and sewer rates and another post summarizing a meeting with Bronx Building Operators about a variety of issues, including insurance, Emergency Rental Relief, and rent-up delays.